Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's first quarter 2020 results conference call. Today with us, we have Mr. Mariano Bosch, CEO, Mr. Charlie Boero Hughes , CFO, and Mr. Juan Ignacio Galeano, investor relations manager. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company's presentation. After the company's remarks are completed, there will be a question and answer section. At that time, further instructions will be given. Should any participant need assistance during the conference, please press star and zero to reach the operator. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Adecoagro's management and on information currently available to the company.
They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Adecoagro and could cause results to differ materially from those expressed in such forward-looking statements. At this time, I'd like to turn the conference call over to Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.
Good morning. Thank you for joining Adecoagro's results conference. Before entering into the analysis of the results of the first quarter of 2020, I would like to firstly use this opportunity to inform you about how our company has been developing under the current conditions. Coronavirus COVID-19 disease has spread across the world at a tremendous speed, affecting the health of general population and in particular, those more vulnerable. Circumstances that led to the countries to impose, sooner or later, mandatory lockdowns and the closing of borders. In these difficult times, our number one concern is the safety of our people. That is why very early on, we constituted a special committee which outlined an action plan to preserve the health of our employees and guarantee hygienic and safe working conditions in all of our facilities.
Safety measures and protocols have been specially designed for each activity and have been quickly activated. An intense educational and communication program was put together, which contributed to the awareness of the current situation and development of new habits. We are proud of the commitment of our people and their trust with Adecoagro's approach to the pandemic, and a testimony of it is their willingness to come to work every day. We believe this joint effort and team spirit will help us overcome this tough situation. We, food and energy producers, are part of the selected group of companies that have not stopped operating in those jurisdictions where total lockdowns is imposed. The activity we carry out are considered essential, and because of this, all of our operations are running without any disruptions.
In our farming business, the price of commodities have been impacted, with soy and corn experiencing a fall, while rice and peanuts, which are the crops in which we are increasing our volumes, remain stable. That's why Argentina and Uruguay are on budget. In Brazil, the demand and price of ethanol have been significantly affected, causing a negative impact in our sugar and ethanol business. To face this situation, we quickly reassessed our strategy and adapted to the new scenario. Sugar is now the product with the highest marginal contribution, so we switched our production mix from the full ethanol to maximizing sugar, reaching close to 60% of sugar of the total TRS we process. This high degree of flexibility constitutes one of our most important competitive advantages, especially under such a sudden change in the market outlook conditions.
Just as important as our flexibility is our constant focus on increasing operational efficiencies and maintaining our costs low. Being a low-cost producer is in our DNA, and now more relevant than ever, allowing us to sell our production at a profit even under current circumstances. In addition to our excellent work at an operational level, we have a very healthy balance sheet with an average life of six years for our debt and a 1.3x liquidity ratio as of today. We believe in the importance of having a strong cash position. In this line, we have successfully reduced roughly $40 million of our CapEx plan and cost structure across all of our businesses. Without compromising the production of coming years. We continue focused in maintaining an efficient operation and periodically reassess our expenditures to make a prudent allocation of our capital.
In addition to what I just described, we have a year full of challenges ahead of us. We feel confident that we have the right teams and that we are following the right strategy to overcome the situation and generate good returns for our existing shareholders. I am convinced that if we remain focused on our low-cost strategy and follow closely our liquidity and day-to-day operations, we will safely sail through this storm and capture the results as soon as the world starts to normalize again. I will let Charlie walk you through the numbers of the quarter, which have been very good, both from a financial and operational point of view.
Thank you, Mariano. Good morning, everyone. As Mariano mentioned, the safety of our people is our main concern. I would like to take a brief moment to walk you through some of the measures we adopted. As well as activating safety measures and protocols tailored for each activity, we have adopted general measures across all our facilities, which include body temperature controls, mandatory social distancing in the workplace, reduction of maximum capacity at lunch and dining rooms, transportation and cars, increased sanitary barriers and periodic cloth changing and cleaning, set aside risk groups, home office for corporate office employees, mandatory quarantine for travelers and those who have close contact with travelers and/or symptomatic persons, and develop an intense capacitation and communication program, including local authorities. Now let's move to page five with a brief analysis on the rains in Mato Grosso do Sul.
As seen on the top charts, rains in our cluster in Mato Grosso do Sul during the 3-month period of 2020 were 12.7% below the same period of last year, and 28.4% below the 10-year average. The distribution of rainfalls, however, was not even throughout the quarter. January was particularly humid, with the registered rains above the 10-year average level. The beginning of the milling activities in our cluster was delayed until mid-February compared to milling for the first quarter of 2019 and the first day of January due to low availability caused by the adverse weather conditions that hit our cluster during 2019. The fact that production stops were continuous and programmed also allowed us to capitalize more costs during the inter-harvest period.
As can be seen in the bottom left chart, the delay in milling activities resulted in a 48.9% year-over-year reduction in total days, and a 21.5% reduction in effective milling days. However, in order to capture the high ethanol prices observed during the quarter and aided by the right weather registered in March, we decided to speed up crushing activities. This strategy is evidenced in the 24.2% year-over-year increase in milling per day, and at the same time explains why total crushing during the first quarter of 2020 amounted to 1.3 million tons, only 2.5% below the first quarter of 2019, even factoring for the shorter harvest period. Please jump now to page six, where I would like to walk you through our agricultural productivity.
With the aim of capturing the high ethanol prices, but being mindful of securing cane availability for 2020, we maximize the harvest of hectares with low productivity potential, thus allowing the sugarcane with highest potential to continue growing and recover from the impact of 2019's adverse weather conditions. This derived in a negative impact in both yield and TRS content. Sugarcane yields during the quarter reached 65 tons per hectare, 29.6% lower year-over-year. In terms of sugar content, TRS during the quarter reached 98 kilograms a ton, 8.7% lower compared to the same period of last year. The combination of these two effects resulted in TRS production per hectare of 6.4 tons, 35.7% lower year-over-year. Let's move ahead to slide seven, where I would like to discuss our production mix.
As you can see in the top left chart, anhydrous ethanol in Mato Grosso do Sul traded at an average price of $0.161 and $0.152 per pound sugar equivalent, marking a 17.5% and 11.2% premium to sugar respectively. In this context, all our efforts were focused on maximizing ethanol production. As can be seen on the top right chart, during the first quarter, we diverted 95% of our TRS production to ethanol. I would like to insist that this high degree in flexibility constitutes one of our most important competitive advantages, since it allows us to make a more efficient use of our fixed assets and sell the product with highest margin and contribution.
As a result of this strategy, during the first quarter of the year, ethanol accounted for 62% of total EBITDA generation in the sugar, ethanol, and energy business, considering other operating income, while sugar accounted for 36%. Let's please turn to slide eight, where I would like to discuss quarterly sales. As you can see on the top left chart, ethanol sales volumes decreased by 18.9% year-over-year. This is mainly explained by the lockdown that took place in Brazil from the second half of March, and by the lower volumes available for sale on the account of a reduction in ethanol production, coupled with lower inventories carried from the previous quarter. This was partially offset by average selling prices, which increased by 3.8%, reaching $0.163 per pound, marking a significant premium to sugar.
All in all, net ethanol sales reached $52.2 million, 16.8% lower compared to the same period of last year. In the case of energy, selling volumes reached 106,000 megawatt hour, marking a 23.4% decrease year-over-year, explained by our strategy to carry bagasse in line of the low energy prices, which averaged $39 per megawatt hour, 34.3% lower compared to the same period of last year. Overall, net sales were 49.7% lower compared to the first quarter of 2019, reaching $4.2 million. Sugar sales volumes during the quarter reached 8,900 tons, 72.2% lower year-over-year on the account of the full maximization of ethanol production, coupled with lower crushing activities and lower inventories carried from the previous quarter. Average net selling prices reached $0.136 per pound, 9.9% lower compared to the same period of last year.
Net sugar sales reached $2.8 million, 73.4% lower year-over-year. To conclude with the sugar, ethanol, and energy business, please turn to slide nine, where I would like to discuss financial performance. Adjusted EBITDA during the first quarter of 2020 was $40.9 million, 31.2% higher compared to the same period of last year. This was mostly explained by the $16.8 million gain from the mark to market of our commodity hedge position, which fully offset the reduction cost margin. Selling expenses were also reduced. This was so because a lower freight cost due to lower sales of sugar, lower energy distribution expenses, but mostly due to lower sales taxes paid on ethanol, which are included under selling expenses, driven by the lower year-over-year volume. I would now like to move on to farming business. Please direct your attention to slide 11.
During the second half of 2019, we began our planting activities for the 2019 and 2020 harvest year. Planting activities continued throughout early 2020, and as of the date of the report, we have seeded a total of 238,000 hectares. Own crop of area reached 106,000 hectares, 1.1% or 1.2 thousand hectares lower compared to the previous season, while leased area increased by 13%, reaching 97,000 hectares. Let's move to page 12, where I would like to walk you through the financial performance of our farming and land transformation businesses. Adjusted EBITDA in the farming and land transformation businesses was $24.7 million, $7.3 million or 22.7% lower year-over-year. The decrease in financial performance is fully explained by the $9.4 million lower results derived from the absence of farm sales during Q1 2020, compared to 2019, when Alto Alegre farm was sold.
Excluding results from land transformation, adjusted EBITDA for the farming business was $2.1 million, 9.4% higher year-over-year. The rice business generated $15.2 million in adjusted EBITDA on the account of high average prices, both in the domestic and export markets, as well as high yields due to enhanced agricultural and industrial efficiencies. The $1.2 million year-over-year increase was mainly explained by cost dilution following the depreciation of the Argentine peso and lower selling expenses due to a higher participation of export market on the sales mix, which as opposed to domestic sales, don't require to incur in packaging costs, among others. The crops business generating an adjusted EBITDA of $6.3 million during the quarter, 15.6% higher year-over-year. This increase is mainly explained by higher selling volumes and the higher mark to market of our biological assets, which fully offset lower average grain prices.
The dairy business generated an adjusted EBITDA of $3.2 million, mainly explained by the higher production and selling volumes, driven by an almost 20% increase in our dairy cow herd and attained efficiencies in the ramp-up of our industrial operations. Let's now turn to page 14, which shows the evolution of Adecoagro's consolidated operational and financial performance. Net sales during the first three months of 2020 reached $151 million, 1.5% lower year-over-year. This is mainly explained by the lower selling volumes in the sugar, ethanol, and energy business, coupled with the lower prices of sugar and energy measured in U.S. dollars. Adjusted EBITDA totaled $61 million, marking a 4.7% increase compared to the same period of last year, or 24.8% excluding land transformation.
The $9.4 million lower results in our land transformation business was fully offset by the higher adjusted EBITDA in the Sugar, Ethanol, and Energy Business, mostly on the account of the higher mark-to-market gains of our commodity hedge position, in addition to currency depreciation, which allowed to dilute costs. Please turn to slide 15 to take a look at our net debt position. As you may see in the bottom left chart, our gross indebtedness as of March the 31st of 2020 stood at $947 million, 2.2% lower compared to December 31st of 2019, while our cash and equivalents stood at $235 million, 18.9% lower.
Net debt amounted to $711 million, marking a 4.9% increase compared to the previous quarter, mainly explained by the higher working capital requirements that, from a seasonality point of view, normally takes place during the first quarter, partially offset by the depreciation of the Brazilian real, which generated a positive net effect of $10 million. As you can observe, in the first quarter of 2019, net debt amounted to $729 million, showing that the trend of reducing net debt year-over-year continues. Net debt ratio reached 2.31 times, 4.1% higher compared to the fourth quarter of 2019. At the same time, our liquidity ratio, which is calculated as cash and equivalents plus marketable inventories divided by short-term debt, reached 1.35 times as of March 31st, 2020, 1.15 times not accounting for inventories.
Any value above one point shows the full capacity of the company to replace short-term debt with cash balance without raising external capital. We consider our balance sheet to be in a solid position, considering not only the adequate debt levels, but also its long-term tenor, with an average maturity of over six years. In spite of our non-guidance policy, I would like to take a moment to comment on a few points going forward. In light of the publicly known macroeconomic events, we have been reassessing our cost structure across all our businesses as well as our capital expenditures, and we have put on hold many uncommitted expenses, being mindful that it will not jeopardize productivity going forward. We will continue to follow closely our day-to-day operations, all the while looking for ways to further enhance efficiencies.
On this note, I would like to highlight that our continuous focus on being low-cost producers is enabling us to generate a profit even at current low prices. In regards to our liquidity position, we believe that no more than ever, cash is king. As part of our risk management policy and anticipation of the maturity of working capital lines, we successfully rolled $70 million in Argentina in short-term lines and raised roughly another $50 million in Brazil to strengthen our cash position. In addition to this, we are very well advanced in negotiations to raise an additional $100 million. In these uncertain times, the fact that we were able to promptly raise these lines speaks to the bank's confidence in us and how highly committed we are. Thank you very much for your time. We are now open to questions.
Thank you. The floor is now open for questions. If you have a question, please press star and one on your touch-tone phone at this or any time. If at any point your question is answered, you may remove yourself from the queue by pressing star and two. Questions will be taken in the order in which they are received. We do ask that when you pose your question, that you pick up your handset to provide optimum sound quality. Once again, that is star and then one to ask a question. Please hold while we poll for questions. Our first question comes from Isabella Simonato from Bank of America. Please go ahead with your question.
Thank you. Good morning, Mariano. Good morning, Charlie. Thank you for taking my question. I'm sorry I joined the call a little bit late. I'm not sure if you comment about what I'm going to ask. Regarding the $40 million in cost that you mentioned you are planning to save, right? Can you explain a little bit, where are the sources of savings and do you think this will be permanent or at some point those will be reinvested again in the business? That's pretty much it.
Thank you, Isabella, and thank you for your question. I'm going to ask Renato to get into the details of No, sorry, Renato is not in the line. We're having a communication issue. I'm going to answer. I'm going to take your question and answer it. Most of this $40 million are things that we are, in some way, delaying. Part of the CapEx, this is a planting. In order to reach the 13 million tons at some point in the five-year plan, we will need to plant these additional hectares. There are some industrial things in order to do more ethanol in our plant. That's what we are delaying today. Some of these things are delays.
There are some others that are continue to improve and things that we are improvement that we are finding, because in this $40 million, we are not taking into account nothing of the devaluation. You have another $40 million or $50 million that comes from the cost savings that comes mainly from devaluation. That's it, basically, a quick answer on your question.
Okay. Thank you.
Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Our next question comes from Lucas Ferreira from JPMorgan . Please go ahead with your question.
Hi, guys. Good morning. My first question is, in Argentina, if you had any disruptions in terms of logistics for all your businesses during the quarantine, if you guys saw any impact of this sort. In Brazil, with this current effects of almost a six, if you can update us, what could be your best expectation of your cost of production, in cents per pounds, considering all in, right, including OpEx. Also, in Brazil, if you can comment quickly on the updated mix you're expecting for the quarter. Obviously, you're going to be producing much more sugar and the expected working capital commitment for these movements towards more sugar. Thank you.
Thank you, Lucas, for your question. Number 1, in Argentina. In Argentina, today, and as we speak, we are harvesting in optimum conditions. All our plants are performing at top productivity, maximum productivity. We are having no issue at all in terms of operations as of today. Of course, we solved many issues. There were many local mayors of different towns that were afraid and that have issues. As I mentioned at the beginning, Charlie reinforced again, we took a lot of measures to take care of the safety of the people. They realized that we were even more careful than what the law was requiring. That's why people feel safe. Because of this, we were able to operate in 100% of all the different levels of the operation.
I would say that Argentina today is operating at its best possible. On top of that, the harvest is being good, so we are collecting well. As of today, there hasn't been an issue in any of our people nor the surrounding towns around our operations. That's the answer for the first part of your question. In Brazil, that you ask different things. First of all, in terms of effects, what the impact of the effect. The cost of production, as we mentioned, there is an important saving there that is around $50 million, and the saving because of the improvement of the costs are on the operational side. That is 100% in BRL. On the CapEx part, that is most of it in BRL. On the renewal, also in BRL. I would say that 90% or 95% of our costs are in BRL.
That's why the impact is, in terms of $, directly impacting there. There are a few things, that is this 5%-7%, and depending on how you take into account, that is the price of diesel. That is in $, but the huge reduction in price of oil had made that impact. You have the price of the leases, that is the Consecana price, that is affected by a portion in sugar, that has a relation in $. This is a very small part of our cost, because as we are the owners of the cane and we only pay the lease, that's why the impact of the $ in terms of the cost is very low. That's the main impact of the effects in terms of cost of production in Brazil. You also asked about the updated mix.
We did, as we mentioned, in the first quarter, 98% of the ethanol. That was 100% of ethanol until the day that we had this main reduction in the price of oil or in the price of ethanol. At that same day is that we changed, and we put 100% of sugar production. It's never 100% of sugar. When we are maximizing sugar, we are doing and we are measuring in a daily basis and in a weekly basis, around 65% of sugar production from that day onwards. Between 60%-65% of sugar maximization or sugar mix is what we are currently doing in our operations. That's the updated mix. Depending on how much we mill going forward, that would be the final number of total sugar mix. In terms of the working capital requirement, it's in line with what we've been doing.
What we are expecting now is to carry some of the ethanol. We sold ethanol until a few days ago, and now we are storing ethanol to find a better opportunity. The only thing in ethanol that we are selling is the anhydrous ethanol. That's the working capital needs. That is the usual needs that we have every year. We don't see a huge change there in terms of the working capital needs. I think that I do cover all your question, Lucas. If you have something else, let me know.
No, that's all. Thank you very much. Very clear.
Once again, if you would like to ask a question, please press star and one. To withdraw your question, you may press star and two. Our next question comes from Fernanda Cunha from Citibank. Please go ahead with your question.
Hi, good morning, everyone. Thank you for taking my questions. I just had a follow-up of what was mentioned in the presentation. If I understood correctly, you're going to postpone part of the CapEx expansion in the sugar and ethanol business to the end of this crop or for next crop year. I'm just wondering if you could give us if we're maintaining the initial guidance of the crushing rates for this year, which, if I recall correctly, was around 11.7, if there's any change on that, and how are you looking at roughly what's the age of your sugarcane crop, and if you see any downside risk in case you delay some of the CapEx in treatment and in planting for this year. Thank you.
Sorry, I had some difficulties on hearing the question. Can you repeat the question please?
Sure. Can you hear me well now?
Yes, I can hear you well now.
Okay, good. I just have a follow-up on the presentation. You mentioned that there could be some delays or postponement in terms of the expansion CapEx in the sugar and ethanol business, right? I'm just wondering if we should see any changes in the crushing rates for this year. Also if you could tell us if you see any downside risk in terms of your sugarcane age. If you could let us know how much it is right now, and if you see any downside risk on that. Thank you.
Okay, yeah. Excellent. Thank you. I was able to understand. These are weekly decisions that we are taking. On this CapEx savings is something that we are expecting to do. Some of them we have already done or we are already doing. We are expecting to continue doing in terms of sugarcane plantation. Depending on how the market evolves and how the price of ethanol evolves, that could change, because planting cane means something that we are doing every day and every week. As of today, we are projecting that with these prices, we will be delaying some of our planting expansion and some of the renewals. We are looking at every field, and we know where we can have one more year or not, depending on the field and what's the return on that specific place.
The decisions that we take every week is what ends up being the final number that occurs at the end of the year or what we are expecting today to happen. Having said this, I would say, to be more precise, that we are projecting this year 11 million tons of total crushing compared to the 11.7 that we were projecting before, as you were asking. For next year, as we are delaying some of this year, we are projecting more or less in line with what we were projecting before. That's why we are moving some cane from this year to the following year. For the following year, that is 2022, we are delaying the sugarcane that we are not planting during this year. That's basically what we are projecting with this.
instead of reaching the $30 million in 2022, we may reach the 30 million tons, sorry, in 2023. That's conceptually what we are doing today, is delaying a little bit the maximum capacity of sugarcane milling in two years from now.
Great. Thanks for the call. Can you let us know what the age of your sugarcane?
Yes. I don't have the number by I don't know if Renato is in the line.
Yes, I'm in the line, Mariano.
Okay. Can you answer?
Fernanda, we have crushed older sugarcane in the beginning of the year because those sugarcanes are the ones that have less potential to further development. If you compare to last year, the yields of those, the fifth and sixth cut or ratoon sugarcane is approximately the same. Also this year, the age of the total sugarcane is younger than last year, considering the planting that we had done last year. It's something that we do just in the first quarter to give more time to the cane that has more potential to grow. We're going to be crushing a better sugarcane in the coming quarters.
Okay, perfect. Thank you.
Our next question comes from Lucas Ferreira from J.P. Morgan. Please go ahead with your question.
Hi, guys. If I may, just a follow-up to Renato, just to clarify something. The plan of crushing 11 million tons, slightly less than the previous expectation, is this because you guys are leaving some sugarcane to be crushed for next year in the fields due to maybe lower ethanol demand and lower profitability in ethanol or not? It's just because you see less availability of cane due to lower planting? Just to clarify.
Lucas, considering that the last year below average rainfall in Mato Grosso do Sul, our situation of cane at the beginning of the year, it was not ideal. For this reason, we had to slow down the crushing at the beginning of the year to give more time to the sugarcane to develop, to be crushed in the coming quarters. By doing that, we are going to have more sugarcane for the remaining part of the year and also next year. We are going to have a better continuous harvest next year compared to this year, to the current one. The only thing that we have changed, and then the balance has changed as well, is the fact that we are planting less sugarcane this year. We are planting 8,000 hectares less sugarcane as a part of the cash saving program.
From these 8,000 hectares, 5,000 hectares is related to maintaining planting and 3,000 hectares related to expansion planting.
Okay. Many thanks.
Ladies and gentlemen, at this point, we've reached the end of today's question and answer session. At this time, I'd like to turn the floor back over to Mr. Bosch for any closing remarks.
Once again, I just want to thank our teams for being fully committed. We are confident that we are in a good position to go through these difficult times. I would also like to take the opportunity to thank our shareholders for being committed with our story and always providing support. Hope to see you all shortly. Take care.
Ladies and gentlemen, thank you. That concludes today's presentation. You may now disconnect your lines. Have a nice day.